Property manager control over bank account and check-writing

Yes, we did it this way.

* We have a full-service property manager that was thoroughly vetted before we hired them. One of the skills they bring to the table is money management in addition to a track record of reliability.

* The board receives copies of the financials each month. Their job is to understand what's going on and ask questions if something doesn't make sense. The buck always stops with them.

* Why property managers handle the money:
- single point of contact for vendors.
- they have the software that handles this stuff, whereas boards often rely on paper checks.
- they have the skills, whereas board members often don't.
- it's their 9-5 job, whereas for board members it's often something they do in their spare time - things are more likely to be done promptly and not fall through the cracks if the PM handles it.

* The books are audited regularly by an independent firm. We also carry enough fidelity insurance in the event that somebody gets sticky fingers.

* Board members are no more likely to be honest or dishonest than professionals. Relying on Good Ol' Joe down the street to keep your books can provide a false sense of security.

* You tend to hear about PMs who embezzle big bucks, but you're less likely to hear about the smaller cases where Good Ol' Joe walks away with a $100K. Doesn't mean the latter isn't happening. And your average homeowner tends to have a different idea of what constitutes "Big bucks" and what's worth risking a felony conviction over.

For what it's worth...

The only time I (board pres) set up an account was when we were shopping around for another bank to move our reserves into. I did the legwork because I spent part of my career in the investment world, so I know this stuff.

As far as I can recall, the developers of the condo communities I've lived in set up the bank accounts initially and then transferred them to the first PM company. When the communities changed management companies, the incoming and outgoing PMs worked with each other to transfer accounts (we changed banks at that point as well and the new PM set up the accounts). It makes sense to leave the old account open for some time to allow checks to clear, interest to be credited, and the like. I'd question a year, but a few months sounds reasonable to me. (Come to think of it, we still have a few bucks lingering at an old bank, but it's under the association's name and appears on the monthly financial statements, so not that big a deal.)

The association's name should always appear somewhere on the account. As far as I know, most associations use a bank lockbox system to receive assessment payments. The OCR code at the bottom of the coupon books will have the correct account codes so that the money goes where it belongs. Those who use their own banks' bill payment systems also include the account numbers.

I think that the best advice for dealing with a management company is "trust but verify". Hire a good one with good references (and check the references!). You may need to pay more for their services, but you get what you pay for. Then the board members should check the monthly financial statements (all board members, not just the treasurer). Question anything you don't understand. Audit regularly. And keep your ears peeled for any scuttlebutt - it may be nothing, but then again it may be something.

As I said previously, putting your finances in the hands of a neighbor can provide a false sense of security. You're more likely to trust the guy you chat with regularly and possibly overlook something that would have caught your eye if you'd been checking the work of a stranger.

Some HOA bylaws require that property managers control the primary access to financial accounts on behalf of the organization. Mine forbids board directors from directly accessing accounts or writing checks. We direct the property management on matters of expenses and back that relationship with an annual audit conducted by a third-party CPA.

The "invitation" to fraud is to give an HOA officer direct account access. The property management company exists to make money and while fraud is certainly possible, the odds are the company is a safer choice due to its business being completely ruined if there's financial theft. The HOA is in MUCH greater danger of bankrupting itself through giving local board directors control over the tangible issuance of checks where spending is the killer rather than thievery.

In this forum, over all these years, I've read a hundred posts about boards that "illegally" mismanage funds. It's not that so much illegal activity as it's incompetence.

That said, many HOAs have board officers that issue direct payments and cash access. I don't like it as it opens volunteer directors to baseless accusations.

This is basically how we operate. Our PM does not have access to our two Reserve Bank Accounts. They can make deposits but no withdrawals. The Pres and Treasurer have access to those accounts. Our dues are paid to a bank lock box and the bank all money to our PM. The BOD can stop the bank from sending money to the PM who pays all the bills.

We get a 25 or so page Monthly Financial report sent to each BOD Member. Every penny in and out is accounted for. It is up to us how closely we read/analyze the report.

No matter what system one puts in place, cheaters cheat and they will find a way to cheat you.

Thanks-- this information is very helpful. I appreciate your responses.

NYC is basically one big scam. That's my view, and I live there.

Thanks again; this is really helpful.

BillH10, if a HOA said that it would use your bank, and asked for specific details about how you wanted the accounts and said that it would open the accounts as you instruct, and was OK with one signature for checks (so that PM could write checks), but wanted board members also to be signatories on the account and wanted board members to have online access, would that be OK?

I live in self managed associations.

The closest we have had to a PM for finances was a bookkeeper.
The bookkeeper would receive the payments, record the payments and make the deposits.

The accounts were in the name of the Association and the bookkeeper was NOT on the account (you don't have to be to make deposits).
Bank deposits were sent to the Associations PO box and given to the Treasurer
Checks were written by the treasurer and signed by two officers (yes only an internal control - as the bank doesn't care if there is one or two signatures).

I've heard of managed Associations allow the PM access to the operating funds but not the reserve funds (as a way to minimize risk).

Thanks again- most helpful!

Our HOA must personally go to the bank(s) where are Reserve Accounts are if we change Account Signers. The banks require both new and old there (could be 4 or us) at the same time. A real PIA. Fortunately we do not need to change year to year.